Balance Sheet
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Balance sheet
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Accountancy
Key concepts Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard practices · Cash and accrual basis · GAAP / IFRS Financial statements Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings Auditing Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors Fields of accounting Cost · Financial · Forensic · Fund · Management · Tax
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Annual balance sheet written in cuneiform script. Sumeria, clay, ca. 2040 BCE. Department of Oriental Antiquities, Louvre. In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3] Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not
withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.
Contents
[hide]
• •
•
• • •
1 Origin 2 Types o 2.1 Personal balance sheet o 2.2 US small business balance sheet 3 Public Business Entities balance sheet structure o 3.1 Assets o 3.2 Liabilities o 3.3 Equity 4 Sample balance sheet structure 5 See also 6 References
[edit] Origin
It was the Flemish mathematician Simon Stevin who persuaded merchants to make it a rule to summarize accounts at the end of every year in a chapter entitled Coopmansbouckhouding op de Italiaensche wyse (Dutch: "Commercial Book-keeping in the Italian Way") of his Wisconstigheg hedachtenissen (Dutch: "Mathematical memoirs", Leiden, 1605-08). Although the balance sheet he required every enterprise to prepare every year was based on entries of the ledger, it was prepared separately from the major books of account. The oldest semi-public balance sheet recorded was that of the East India Company dated 30th April 1671, which was submitted to the company's General Meeting on in 30th August 1671. The publication and audit of the balance sheet was still a rarity in England until the passing of the Bank Charter Act 1844.[4]
[edit] Types
A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets.[5][dead link] Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.[6] Large businesses also may prepare balance sheets for segments of their businesses.[7] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[8]
[9][dead link]
[edit] Personal balance sheet
A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities.[10][dead link]
[edit] US small business balance sheet
Sample Small Business Balance Sheet[11] Assets Cash Accounts Receivable Liabilities and Owners' Equity $6,600 Liabilities $6,200 Notes Payable Accounts Payable Total liabilities Tools and equipment $25,000 Owners' equity Capital Stock Retained Earnings $7,000 $800 $7,800 $37,800 $30,000 $30,000
Total owners' equity Total $37,800 Total
A really small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible
assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.[12]
[edit] Public Business Entities balance sheet structure
Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee and numerous country-specific organizations. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.[13][dead link][14][15][dead link][16][17] If applicable to the business, summary values for the following items should be included on the balance sheet:[18]
[edit] Assets
Current assets
1. 2. 3. 4.
Cash and cash equivalents Inventories Accounts receivable Prepaid expenses for future services that will be used within a year
Fixed assets Property, plant and equipment Investment property, such as real estate held for investment purposes Intangible assets Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) 5. Investments accounted for using the equity method 6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.[19]
1. 2. 3. 4.
[edit] Liabilities
Accounts payable Provisions for warranties or court decisions Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds 4. Liabilities and assets for current tax
1. 2. 3.
Deferred tax liabilities and deferred tax assets Minority interest in equity Issued capital and reserves attributable to equity holders of the Parent company 8. Unearned revenue for services paid for by customers but not yet provided
5. 6. 7.
[edit] Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual.
1. 2.
3. 4.
5. 6.
7.
Numbers of shares authorized, issued and fully paid, and issued but not fully paid Par value of shares Reconciliation of shares outstanding at the beginning and the end of the period Description of rights, preferences, and restrictions of shares Treasury shares, including shares held by subsidiaries and associates Shares reserved for issuance under options and contracts A description of the nature and purpose of each reserve within owners' equity
[edit] Sample balance sheet structure
The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.
Balance Sheet of XYZ, Ltd. as of 31 December 2006 ASSETS Current Assets Cash and cash equivalents Accounts receivable (debtors) Inventories Prepaid Expenses Investments held for trading Other current assets Fixed Assets (Non-Current Assets) Property, plant and equipment Less : Accumulated Depreciation Goodwill Other intangible fixed assets
Investments in associates Deferred tax assets LIABILITIES and EQUITY Creditors: amounts falling due within one year (Current Liabilities) Accounts payable Current income tax liabilities Current portion of bank loans payable Short-term provisions Other current liabilities Creditors: amounts falling due after more than one year (Long-Term Liabilities) Bank loans Issued debt securities Deferred tax liability Provisions Minority interest Equity Share capital Capital reserves Revaluation reserve Translation reserve Retained earnings
An Introduction to the Balance Sheet Identity in Accounting
Article by John Garger (26,886 pts ) Edited & published by Neil Henry (18,623 pts ) on Jan 11, 2010 Tell a friend Share 3 comments Flag this article The balance sheet identity is one the most elementary lessons of accounting. However, students learning introductory accounting often find it difficult to grasp in its standard form. Learn how to rearrange the balance sheet identity to make more sense to the beginning accounting student. The balance sheet of a firm is a snapshot of a company’s financial situation at one point in time and is made up of three parts: the company’s total assets, liabilities, and stockholders’ equity. The balance sheet is the source of information that allows calculations of the most common accounting ratios used in business such as liquidity ratios which measure a firm’s liquidity. For example, the current ratio is calculated by dividing the current assets by the current
liabilities and the quick ratio (also called the acid test) is given by current assets minus inventory all divided by current liabilities. However, the balance sheet identity itself is the key to understanding the usefulness of each ratio. The balance sheet identity is given as: Total Assets = Liabilities + Stockholders’ Equity At first glance, this relationship does not seem intuitive. How can the assets of a corporation equal the addition of stockholders’ equity and liabilities? A little algebra and the identity comes to light. Solving the equation for stockholders’ equity is the key. If we subtract liabilities from both sides we get: Assets – Liabilities = Stockholder’s Equity By transposing this equation, we get: Stockholder’s Equity = Assets – Liabilities The equation now makes much more intuitive sense. Stockholders’ Equity is a residual representation formed by subtracting what the company owes (liabilities) from what it is worth (assets). This equation reveals that the addition of assets (such as cash, accounts receivable, inventory, etc.) increases stockholders’ equity and the addition of liabilities (such as accounts payable, notes payable, and long-term bonds) decrease stockholders’ equity. The left hand side of the balance sheet represents the investment decisions of the organization and the right hand side represents the financing decisions. Liabilities are considered a financing option because it is a method of bringing money into the organization to finance its operations. Stockholders’ equity is whatever is left over if the assets of an organization outweigh its liabilities. When current liabilities (short-term debt) outweigh current assets (liquid assets), a firm is in default of its obligations and usually files for bankruptcy unless an alternative method of paying off its creditors can be found.
Read more: http://www.brighthub.com/office/finance/articles/16013.aspx#ixzz0fJlsajm2
Concepts of Investing : Assets and Liabilities
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Financial Statements Tags: Asset, Operational Planning, Financial Statements, Financial Accounting, Finance, Business Operations, Balance Sheets, Balance Sheet, Asset Management, Thomson Corp. Source: Thomson
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FREE Registration is required Overview: Assets and Liabilities are the two core elements that make up the balance sheet of a corporation. Being able to understand these numbers can help you make better decisions. And you should be able to do better than say "Assets are on the left; liabilities are on the right of the balance sheet." The article gives certain balance sheet basics that will help the company and the interested parties like the investors, auditors, directors’ etc to use a company's assets and liabilities information effectively and in an easily understandable manner.
Asset liability management
From Wikipedia, the free encyclopedia
Jump to: navigation, search This article may need to be rewritten entirely to comply with Wikipedia's quality standards. You can help. The discussion page may contain suggestions. (May 2009) In banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. This can also be seen in insurance. Banks face several risks such as the liquidity risk, interest rate risk, credit risk and operational risk. Asset Liability management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks, other financial services companies and corporations.
Banks manage the risks of Asset liability mismatch by matching the assets and liabilities according to the maturity pattern or the matching the duration, by hedging and by securitization. Much of the techniques for hedging stem from the delta hedging concepts introduced in the Black-Scholes model and in the work of Robert C. Merton and Robert A. Jarrow. The early origins of asset and liability management date to the high interest rate periods of 1975-6 and the late 1970s and early 1980s in the United States. Van Deventer, Imai and Mesler (2004), chapter 2, outline this history in detail. Modern risk management now takes place from an integrated approach to enterprise risk management that reflects the fact that interest rate risk, credit risk, market risk, and liquidity risk are all interrelated. The Jarrow-Turnbull model is an example of a risk management methodology that integrates default and random interest rates. The earliest work in this regard was done by Robert C. Merton. Increasing integrated risk management is done on a full mark to market basis rather than the accounting basis that was at the heart of the first interest rate sensivity gap and duration calculations.
What Are Assets, Liabilities, and Owners' Equity?
Assets, liabilities and owners' equity are the three components that make up a company's balance sheet. The balance sheet, which shows a business's financial condition at any point, is based on this equation: Assets = Liabilities + Owners' Equity This equation is also the framework for keeping track of money as it flows in and out of your company. Starting with the first penny you earn, you'll record in a general ledger each and every transaction using a double-entry system of debits and credits. Assets get recorded on the top or the left side of the balance sheet; liabilities and owners' equity are recorded on the bottom or the right side of the balance sheet. The information on each company's general ledger is unique to that business; however, all companies classify their general ledger accounts as assets, liabilities or owners' equity. Businesses use more specific accounts within each classification, for example, "current assets" or "long-term liabilities," to organize and track their finances. Assets An asset is anything of value that your company owns — including cash. Assets get recorded on the balance sheet in terms of their dollar values. Remember, even if you used credit to purchase an asset, you still own it. Its full dollar value gets recorded on one side of the balance sheet as an asset, and the amount you owe gets recorded on the other side of the balance sheet as a liability. There are several types of assets: • Current assets. These are assets with dollar amounts that continually change, for
example, cash, accounts receivable, inventory or raw materials your company uses to make a product. They are listed on the balance sheet in order of their liquidity, or how fast they can be converted into cash.
•
Investments. Companies, like individuals, can own securities such as stocks and
bonds. Investments, like cash or property, are considered assets. • Capital assets. Think of capital assets, also called plant assets, as permanent things
your company owns. Land, buildings, equipment and vehicles are common capital assets. So are things like computers, furniture and appliances, as long as they remain for use within your business and are not items you sell. • Intangible assets. Patents, copyrights and other nonmaterial assets that have value are
referred to as intangible. Liabilities Anything a company owes to people or businesses other than its owners is considered a liability. There are two types of liabilities: • Current liabilities. In general, if a liability must be paid within a year, it is considered
current. This includes bills, money you owe to your vendors and suppliers, employee payroll and short-term loans. • Long-term liabilities. A long-term liability is any debt that extends beyond one year,
such as a mortgage. Owners' Equity Owners' equity, also called capital, is any debt owed to the business owners. For example, if you invested $50,000 of your savings to start a business, that amount is recorded in a capital account, also referred to as an owners'-equity account. In publicly traded companies, outstanding preferred and common stock also represents owners' equity. Your business's revenues and expenses are also recorded in capital accounts because they relate to how much money your company makes over a period of time. At the end of each accounting cycle, a business' profits get transferred to a capital account
Importance of Current Assets and Current Liabilities
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When you study the figures of a target company it is worth examining its current assets and current liabilities. Current assets represent assets that can be quickly transferred into money. Some of them are: • • Cash Cash equivalents
• •
Inventories Accounts receivable (these are the
money that customers owe to the company for services or products provided) Current liabilities represent the short term obligations of the company. Some of them are: • • Accounts payable Short term debt
Current assets and current liabilities should be compared over periods of time. It is good if the current assets have increased significantly over longer periods of time. This means that the company generates cash. On the other hand, it can be also interpreted as the company not being able to collect the money it has to take from its accounts receivable. If the current liabilities of the company are growing at a fast pace, then there might be some problem with the company. However, this is not always bad since the company may incur higher liabilities since it needs money to finance some of its goals. Finally, you should carefully study these indicators of the target company in order to determine its future potentials. You can quickly and easily obtain this information from financial statements. To be a successful investor you need two main things - the knowledge and the right trading platform. For a trading platform we recommend you try Zecco . Zecco offers free stock trades, no account minimum, real time quotes, trading community, and is also insured and protected against loss by SIPC. Opening a Zecco account to benefit from $0 Stock/ETF trading is a smart idea. Free stock trades allow you to preserve more of your wealth and save money, which you can invest instead of paying brokerage commissions.
Assets and Liabilities
Generally, assets and liabilities are terms used in economics and accounting. Assets are everything of value owned by a person or company. They represent property that might include cash, bank deposits, stocks or a
house. Liabilities on the other hand, are a financial obligation that legally binds an individual or company to settle a debt. Assets and liabilities together determine the wealth of an individual, firm or a nation. Importance of Assets in a Loan In order to get a loan, one must possess a certain amount of assets to provide to the financial institution. This means a complete list of all your assets as well as liabilities during a loan interview will be needed, including the balances in any bank accounts a borrower has. In a loan approval process, liquid assets are considered an important factor because they are required for the down payment, closing costs, prepaid, and cash reserves after the closing of a loan. Liability’s Role in a Loan In relation to loans, liabilities are obligations or bills on the part of the borrower that shows up on their credit report, that are used to determine debt ratios. Any type of loan, whether it’s a payday loan, home loan, personal or cash loans are considered current liability which is usually less than the total amount the borrower would have to pay if he allow it to run to its natural term and continue to pay only the installment payments. This is due to the interest charged by the lender on the debt as the loan term runs. During a loan interview, the borrower will be asked about their liabilities including outstanding loans or debts and to whom you owe the money to. Most of the times, the actual amount owed on previous loans, balances on the credit card and any other forms of financing will also be questioned.
Current Liabilities
Investing Lesson 3 - Analyzing a Balance Sheet
By Joshua Kennon, About.com Guide
See More About:
• • • • •
debt to equity debt management investing research income statements financial ratios
Current liabilities represent money a company owes for its debts or liabilities in the next twelve months. The biggest current liability is most often accounts payable, which is money owed to vendors for goods or services provided to the company.
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Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current assets. Current liabilities includes things such as short term loans, accounts payable, dividends and interest payable, bonds payable, consumer deposits, and reserves for Federal taxes. Let's take a look at some of the most common and important current liabilities on the balance sheet. Accounts Payable - The Most Popular Current Liability Accounts payable is the opposite of accounts receivable. It arises when a company receives a product or service before it pays for it. Accounts payable, or A/P as it is often shorthanded, is one of the largest current liabilities a company will face because they are constantly ordering new products or paying vendors for services or merchandise. Really well managed companies attempt to keep accounts payable high enough to cover all existing inventory, meaning that the vendors are paying for the company's shelves to remain stocked, in effect. Accrued Benefits and Payroll as a Current Liability This item in the current liabilities section of the balance sheet represents money owed to employees as salary and bonus that the company has not yet paid. Short Term and Current Long Term Debt These current liabilities are sometimes referred to as notes payable. They are the most important item under current liabilities section of the balance sheet and most of the time, they represent the payments on a company's bank loans that are due in the next twelve months. Borrowing money in itself is not necessarily a sign of financial weakness; an intelligent department store executive may work out short term loans at Christmas so she can stock up on merchandise before the Holiday rush. If demand is high, the store would sell all of its inventory, pay back the short term loans, and pocket the difference. This is known as utilizing leverage. The department store used borrowed money to make a profit. So how can you ever hope to tell if a company is wisely borrowing money (such as our department store), or recklessly going into debt? Look at the amount of notes payable on the balance sheet (if they aren't classified under 'notes payable', combine the company's short term obligations and long term current debt). If the amount of cash and cash equivalents is much larger than the notes payable, you shouldn't have any reason to be concerned. If, on the other hand, the notes payable has a higher value than the cash, short term investments, and accounts receivable combined, you should be seriously concerned. Unless the company operates in a business where inventory can quickly be turned into cash, this is a serious sign of financial weakness. Other Current Liabilities Depending on the company, you will see various other current liabilities listed. Sometimes they will be lumped together under the title "other current liabilities." Normally, you can find a detailed listing of what these "other" liabilities are buried somewhere in the annual report or 10k. Often, you can figure out the meaning of the entry by its name. If a business lists "Commercial Paper" or "Bonds Payable" as a current liability, you can be fairly confident the amount listed is what will be paid out to the company's bond holders in the short term.
Consumer Deposits Are Liabilities to Banks If you are looking at the balance sheet of a bank, you will want to pay close attention to an entry under the current liabilities called "Consumer Deposits". Often, they will be will lumped under other current liabilities. This is the amount that customers have deposited in the bank. Since, theoretically, all of the account holders could withdrawal all of their funds at the same time, the bank must list the deposits as a current liability.
Current Liabilities
Investing Lesson 3 - Analyzing a Balance Sheet
By Joshua Kennon, About.com Guide
See More About:
• • • • •
debt to equity debt management investing research income statements financial ratios
Current liabilities represent money a company owes for its debts or liabilities in the next twelve months. The biggest current liability is most often accounts payable, which is money owed to vendors for goods or services provided to the company.
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Bank of SingaporeWorld-class service for today's high net worth individuals. Read onwww.bankofsingapore.com Free Financial ReportsThousands of Corporations Worldwide Access their Annual Reports Now!www.OrderAnnualReports.com ETF PlaybookETF Swing Trading Strategy Free 2-week trial subscriptionrhodes-capital.com Investing Ads Balance Sheet Short Term Loans Debt to Equity Stock Investing Current Liabilities Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current assets. Current liabilities includes things such as short term loans, accounts payable, dividends and interest payable, bonds payable, consumer deposits, and reserves for Federal taxes. Let's take a look at some of the most common and important current liabilities on the balance sheet. Accounts Payable - The Most Popular Current Liability
Accounts payable is the opposite of accounts receivable. It arises when a company receives a product or service before it pays for it. Accounts payable, or A/P as it is often shorthanded, is one of the largest current liabilities a company will face because they are constantly ordering new products or paying vendors for services or merchandise. Really well managed companies attempt to keep accounts payable high enough to cover all existing inventory, meaning that the vendors are paying for the company's shelves to remain stocked, in effect. Accrued Benefits and Payroll as a Current Liability This item in the current liabilities section of the balance sheet represents money owed to employees as salary and bonus that the company has not yet paid. Short Term and Current Long Term Debt These current liabilities are sometimes referred to as notes payable. They are the most important item under current liabilities section of the balance sheet and most of the time, they represent the payments on a company's bank loans that are due in the next twelve months. Borrowing money in itself is not necessarily a sign of financial weakness; an intelligent department store executive may work out short term loans at Christmas so she can stock up on merchandise before the Holiday rush. If demand is high, the store would sell all of its inventory, pay back the short term loans, and pocket the difference. This is known as utilizing leverage. The department store used borrowed money to make a profit. So how can you ever hope to tell if a company is wisely borrowing money (such as our department store), or recklessly going into debt? Look at the amount of notes payable on the balance sheet (if they aren't classified under 'notes payable', combine the company's short term obligations and long term current debt). If the amount of cash and cash equivalents is much larger than the notes payable, you shouldn't have any reason to be concerned. If, on the other hand, the notes payable has a higher value than the cash, short term investments, and accounts receivable combined, you should be seriously concerned. Unless the company operates in a business where inventory can quickly be turned into cash, this is a serious sign of financial weakness. Other Current Liabilities Depending on the company, you will see various other current liabilities listed. Sometimes they will be lumped together under the title "other current liabilities." Normally, you can find a detailed listing of what these "other" liabilities are buried somewhere in the annual report or 10k. Often, you can figure out the meaning of the entry by its name. If a business lists "Commercial Paper" or "Bonds Payable" as a current liability, you can be fairly confident the amount listed is what will be paid out to the company's bond holders in the short term. Consumer Deposits Are Liabilities to Banks If you are looking at the balance sheet of a bank, you will want to pay close attention to an entry under the current liabilities called "Consumer Deposits". Often, they will be will lumped under other current liabilities. This is the amount that customers have deposited in the bank. Since, theoretically, all of the account holders could withdrawal all of their funds at the same time, the bank must list the deposits as a current liability.
From Wikipedia, the free encyclopedia
Jump to: navigation, search It has been suggested that Balance sheet substantiation be merged into this article or section. (Discuss)
Accountancy
Key concepts Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard practices · Cash and accrual basis · GAAP / IFRS Financial statements Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings Auditing Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors Fields of accounting Cost · Financial · Forensic · Fund · Management · Tax
This box: view • talk • edit
Annual balance sheet written in cuneiform script. Sumeria, clay, ca. 2040 BCE. Department of Oriental Antiquities, Louvre. In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3] Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not
withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.
Contents
[hide]
• •
•
• • •
1 Origin 2 Types o 2.1 Personal balance sheet o 2.2 US small business balance sheet 3 Public Business Entities balance sheet structure o 3.1 Assets o 3.2 Liabilities o 3.3 Equity 4 Sample balance sheet structure 5 See also 6 References
[edit] Origin
It was the Flemish mathematician Simon Stevin who persuaded merchants to make it a rule to summarize accounts at the end of every year in a chapter entitled Coopmansbouckhouding op de Italiaensche wyse (Dutch: "Commercial Book-keeping in the Italian Way") of his Wisconstigheg hedachtenissen (Dutch: "Mathematical memoirs", Leiden, 1605-08). Although the balance sheet he required every enterprise to prepare every year was based on entries of the ledger, it was prepared separately from the major books of account. The oldest semi-public balance sheet recorded was that of the East India Company dated 30th April 1671, which was submitted to the company's General Meeting on in 30th August 1671. The publication and audit of the balance sheet was still a rarity in England until the passing of the Bank Charter Act 1844.[4]
[edit] Types
A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets.[5][dead link] Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.[6] Large businesses also may prepare balance sheets for segments of their businesses.[7] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[8]
[9][dead link]
[edit] Personal balance sheet
A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities.[10][dead link]
[edit] US small business balance sheet
Sample Small Business Balance Sheet[11] Assets Cash Accounts Receivable Liabilities and Owners' Equity $6,600 Liabilities $6,200 Notes Payable Accounts Payable Total liabilities Tools and equipment $25,000 Owners' equity Capital Stock Retained Earnings $7,000 $800 $7,800 $37,800 $30,000 $30,000
Total owners' equity Total $37,800 Total
A really small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible
assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.[12]
[edit] Public Business Entities balance sheet structure
Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee and numerous country-specific organizations. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.[13][dead link][14][15][dead link][16][17] If applicable to the business, summary values for the following items should be included on the balance sheet:[18]
[edit] Assets
Current assets
1. 2. 3. 4.
Cash and cash equivalents Inventories Accounts receivable Prepaid expenses for future services that will be used within a year
Fixed assets Property, plant and equipment Investment property, such as real estate held for investment purposes Intangible assets Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) 5. Investments accounted for using the equity method 6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.[19]
1. 2. 3. 4.
[edit] Liabilities
Accounts payable Provisions for warranties or court decisions Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds 4. Liabilities and assets for current tax
1. 2. 3.
Deferred tax liabilities and deferred tax assets Minority interest in equity Issued capital and reserves attributable to equity holders of the Parent company 8. Unearned revenue for services paid for by customers but not yet provided
5. 6. 7.
[edit] Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual.
1. 2.
3. 4.
5. 6.
7.
Numbers of shares authorized, issued and fully paid, and issued but not fully paid Par value of shares Reconciliation of shares outstanding at the beginning and the end of the period Description of rights, preferences, and restrictions of shares Treasury shares, including shares held by subsidiaries and associates Shares reserved for issuance under options and contracts A description of the nature and purpose of each reserve within owners' equity
[edit] Sample balance sheet structure
The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.
Balance Sheet of XYZ, Ltd. as of 31 December 2006 ASSETS Current Assets Cash and cash equivalents Accounts receivable (debtors) Inventories Prepaid Expenses Investments held for trading Other current assets Fixed Assets (Non-Current Assets) Property, plant and equipment Less : Accumulated Depreciation Goodwill Other intangible fixed assets
Investments in associates Deferred tax assets LIABILITIES and EQUITY Creditors: amounts falling due within one year (Current Liabilities) Accounts payable Current income tax liabilities Current portion of bank loans payable Short-term provisions Other current liabilities Creditors: amounts falling due after more than one year (Long-Term Liabilities) Bank loans Issued debt securities Deferred tax liability Provisions Minority interest Equity Share capital Capital reserves Revaluation reserve Translation reserve Retained earnings
An Introduction to the Balance Sheet Identity in Accounting
Article by John Garger (26,886 pts ) Edited & published by Neil Henry (18,623 pts ) on Jan 11, 2010 Tell a friend Share 3 comments Flag this article The balance sheet identity is one the most elementary lessons of accounting. However, students learning introductory accounting often find it difficult to grasp in its standard form. Learn how to rearrange the balance sheet identity to make more sense to the beginning accounting student. The balance sheet of a firm is a snapshot of a company’s financial situation at one point in time and is made up of three parts: the company’s total assets, liabilities, and stockholders’ equity. The balance sheet is the source of information that allows calculations of the most common accounting ratios used in business such as liquidity ratios which measure a firm’s liquidity. For example, the current ratio is calculated by dividing the current assets by the current
liabilities and the quick ratio (also called the acid test) is given by current assets minus inventory all divided by current liabilities. However, the balance sheet identity itself is the key to understanding the usefulness of each ratio. The balance sheet identity is given as: Total Assets = Liabilities + Stockholders’ Equity At first glance, this relationship does not seem intuitive. How can the assets of a corporation equal the addition of stockholders’ equity and liabilities? A little algebra and the identity comes to light. Solving the equation for stockholders’ equity is the key. If we subtract liabilities from both sides we get: Assets – Liabilities = Stockholder’s Equity By transposing this equation, we get: Stockholder’s Equity = Assets – Liabilities The equation now makes much more intuitive sense. Stockholders’ Equity is a residual representation formed by subtracting what the company owes (liabilities) from what it is worth (assets). This equation reveals that the addition of assets (such as cash, accounts receivable, inventory, etc.) increases stockholders’ equity and the addition of liabilities (such as accounts payable, notes payable, and long-term bonds) decrease stockholders’ equity. The left hand side of the balance sheet represents the investment decisions of the organization and the right hand side represents the financing decisions. Liabilities are considered a financing option because it is a method of bringing money into the organization to finance its operations. Stockholders’ equity is whatever is left over if the assets of an organization outweigh its liabilities. When current liabilities (short-term debt) outweigh current assets (liquid assets), a firm is in default of its obligations and usually files for bankruptcy unless an alternative method of paying off its creditors can be found.
Read more: http://www.brighthub.com/office/finance/articles/16013.aspx#ixzz0fJlsajm2
Concepts of Investing : Assets and Liabilities
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Financial Statements Tags: Asset, Operational Planning, Financial Statements, Financial Accounting, Finance, Business Operations, Balance Sheets, Balance Sheet, Asset Management, Thomson Corp. Source: Thomson
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FREE Registration is required Overview: Assets and Liabilities are the two core elements that make up the balance sheet of a corporation. Being able to understand these numbers can help you make better decisions. And you should be able to do better than say "Assets are on the left; liabilities are on the right of the balance sheet." The article gives certain balance sheet basics that will help the company and the interested parties like the investors, auditors, directors’ etc to use a company's assets and liabilities information effectively and in an easily understandable manner.
Asset liability management
From Wikipedia, the free encyclopedia
Jump to: navigation, search This article may need to be rewritten entirely to comply with Wikipedia's quality standards. You can help. The discussion page may contain suggestions. (May 2009) In banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. This can also be seen in insurance. Banks face several risks such as the liquidity risk, interest rate risk, credit risk and operational risk. Asset Liability management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks, other financial services companies and corporations.
Banks manage the risks of Asset liability mismatch by matching the assets and liabilities according to the maturity pattern or the matching the duration, by hedging and by securitization. Much of the techniques for hedging stem from the delta hedging concepts introduced in the Black-Scholes model and in the work of Robert C. Merton and Robert A. Jarrow. The early origins of asset and liability management date to the high interest rate periods of 1975-6 and the late 1970s and early 1980s in the United States. Van Deventer, Imai and Mesler (2004), chapter 2, outline this history in detail. Modern risk management now takes place from an integrated approach to enterprise risk management that reflects the fact that interest rate risk, credit risk, market risk, and liquidity risk are all interrelated. The Jarrow-Turnbull model is an example of a risk management methodology that integrates default and random interest rates. The earliest work in this regard was done by Robert C. Merton. Increasing integrated risk management is done on a full mark to market basis rather than the accounting basis that was at the heart of the first interest rate sensivity gap and duration calculations.
What Are Assets, Liabilities, and Owners' Equity?
Assets, liabilities and owners' equity are the three components that make up a company's balance sheet. The balance sheet, which shows a business's financial condition at any point, is based on this equation: Assets = Liabilities + Owners' Equity This equation is also the framework for keeping track of money as it flows in and out of your company. Starting with the first penny you earn, you'll record in a general ledger each and every transaction using a double-entry system of debits and credits. Assets get recorded on the top or the left side of the balance sheet; liabilities and owners' equity are recorded on the bottom or the right side of the balance sheet. The information on each company's general ledger is unique to that business; however, all companies classify their general ledger accounts as assets, liabilities or owners' equity. Businesses use more specific accounts within each classification, for example, "current assets" or "long-term liabilities," to organize and track their finances. Assets An asset is anything of value that your company owns — including cash. Assets get recorded on the balance sheet in terms of their dollar values. Remember, even if you used credit to purchase an asset, you still own it. Its full dollar value gets recorded on one side of the balance sheet as an asset, and the amount you owe gets recorded on the other side of the balance sheet as a liability. There are several types of assets: • Current assets. These are assets with dollar amounts that continually change, for
example, cash, accounts receivable, inventory or raw materials your company uses to make a product. They are listed on the balance sheet in order of their liquidity, or how fast they can be converted into cash.
•
Investments. Companies, like individuals, can own securities such as stocks and
bonds. Investments, like cash or property, are considered assets. • Capital assets. Think of capital assets, also called plant assets, as permanent things
your company owns. Land, buildings, equipment and vehicles are common capital assets. So are things like computers, furniture and appliances, as long as they remain for use within your business and are not items you sell. • Intangible assets. Patents, copyrights and other nonmaterial assets that have value are
referred to as intangible. Liabilities Anything a company owes to people or businesses other than its owners is considered a liability. There are two types of liabilities: • Current liabilities. In general, if a liability must be paid within a year, it is considered
current. This includes bills, money you owe to your vendors and suppliers, employee payroll and short-term loans. • Long-term liabilities. A long-term liability is any debt that extends beyond one year,
such as a mortgage. Owners' Equity Owners' equity, also called capital, is any debt owed to the business owners. For example, if you invested $50,000 of your savings to start a business, that amount is recorded in a capital account, also referred to as an owners'-equity account. In publicly traded companies, outstanding preferred and common stock also represents owners' equity. Your business's revenues and expenses are also recorded in capital accounts because they relate to how much money your company makes over a period of time. At the end of each accounting cycle, a business' profits get transferred to a capital account
Importance of Current Assets and Current Liabilities
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When you study the figures of a target company it is worth examining its current assets and current liabilities. Current assets represent assets that can be quickly transferred into money. Some of them are: • • Cash Cash equivalents
• •
Inventories Accounts receivable (these are the
money that customers owe to the company for services or products provided) Current liabilities represent the short term obligations of the company. Some of them are: • • Accounts payable Short term debt
Current assets and current liabilities should be compared over periods of time. It is good if the current assets have increased significantly over longer periods of time. This means that the company generates cash. On the other hand, it can be also interpreted as the company not being able to collect the money it has to take from its accounts receivable. If the current liabilities of the company are growing at a fast pace, then there might be some problem with the company. However, this is not always bad since the company may incur higher liabilities since it needs money to finance some of its goals. Finally, you should carefully study these indicators of the target company in order to determine its future potentials. You can quickly and easily obtain this information from financial statements. To be a successful investor you need two main things - the knowledge and the right trading platform. For a trading platform we recommend you try Zecco . Zecco offers free stock trades, no account minimum, real time quotes, trading community, and is also insured and protected against loss by SIPC. Opening a Zecco account to benefit from $0 Stock/ETF trading is a smart idea. Free stock trades allow you to preserve more of your wealth and save money, which you can invest instead of paying brokerage commissions.
Assets and Liabilities
Generally, assets and liabilities are terms used in economics and accounting. Assets are everything of value owned by a person or company. They represent property that might include cash, bank deposits, stocks or a
house. Liabilities on the other hand, are a financial obligation that legally binds an individual or company to settle a debt. Assets and liabilities together determine the wealth of an individual, firm or a nation. Importance of Assets in a Loan In order to get a loan, one must possess a certain amount of assets to provide to the financial institution. This means a complete list of all your assets as well as liabilities during a loan interview will be needed, including the balances in any bank accounts a borrower has. In a loan approval process, liquid assets are considered an important factor because they are required for the down payment, closing costs, prepaid, and cash reserves after the closing of a loan. Liability’s Role in a Loan In relation to loans, liabilities are obligations or bills on the part of the borrower that shows up on their credit report, that are used to determine debt ratios. Any type of loan, whether it’s a payday loan, home loan, personal or cash loans are considered current liability which is usually less than the total amount the borrower would have to pay if he allow it to run to its natural term and continue to pay only the installment payments. This is due to the interest charged by the lender on the debt as the loan term runs. During a loan interview, the borrower will be asked about their liabilities including outstanding loans or debts and to whom you owe the money to. Most of the times, the actual amount owed on previous loans, balances on the credit card and any other forms of financing will also be questioned.
Current Liabilities
Investing Lesson 3 - Analyzing a Balance Sheet
By Joshua Kennon, About.com Guide
See More About:
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debt to equity debt management investing research income statements financial ratios
Current liabilities represent money a company owes for its debts or liabilities in the next twelve months. The biggest current liability is most often accounts payable, which is money owed to vendors for goods or services provided to the company.
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Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current assets. Current liabilities includes things such as short term loans, accounts payable, dividends and interest payable, bonds payable, consumer deposits, and reserves for Federal taxes. Let's take a look at some of the most common and important current liabilities on the balance sheet. Accounts Payable - The Most Popular Current Liability Accounts payable is the opposite of accounts receivable. It arises when a company receives a product or service before it pays for it. Accounts payable, or A/P as it is often shorthanded, is one of the largest current liabilities a company will face because they are constantly ordering new products or paying vendors for services or merchandise. Really well managed companies attempt to keep accounts payable high enough to cover all existing inventory, meaning that the vendors are paying for the company's shelves to remain stocked, in effect. Accrued Benefits and Payroll as a Current Liability This item in the current liabilities section of the balance sheet represents money owed to employees as salary and bonus that the company has not yet paid. Short Term and Current Long Term Debt These current liabilities are sometimes referred to as notes payable. They are the most important item under current liabilities section of the balance sheet and most of the time, they represent the payments on a company's bank loans that are due in the next twelve months. Borrowing money in itself is not necessarily a sign of financial weakness; an intelligent department store executive may work out short term loans at Christmas so she can stock up on merchandise before the Holiday rush. If demand is high, the store would sell all of its inventory, pay back the short term loans, and pocket the difference. This is known as utilizing leverage. The department store used borrowed money to make a profit. So how can you ever hope to tell if a company is wisely borrowing money (such as our department store), or recklessly going into debt? Look at the amount of notes payable on the balance sheet (if they aren't classified under 'notes payable', combine the company's short term obligations and long term current debt). If the amount of cash and cash equivalents is much larger than the notes payable, you shouldn't have any reason to be concerned. If, on the other hand, the notes payable has a higher value than the cash, short term investments, and accounts receivable combined, you should be seriously concerned. Unless the company operates in a business where inventory can quickly be turned into cash, this is a serious sign of financial weakness. Other Current Liabilities Depending on the company, you will see various other current liabilities listed. Sometimes they will be lumped together under the title "other current liabilities." Normally, you can find a detailed listing of what these "other" liabilities are buried somewhere in the annual report or 10k. Often, you can figure out the meaning of the entry by its name. If a business lists "Commercial Paper" or "Bonds Payable" as a current liability, you can be fairly confident the amount listed is what will be paid out to the company's bond holders in the short term.
Consumer Deposits Are Liabilities to Banks If you are looking at the balance sheet of a bank, you will want to pay close attention to an entry under the current liabilities called "Consumer Deposits". Often, they will be will lumped under other current liabilities. This is the amount that customers have deposited in the bank. Since, theoretically, all of the account holders could withdrawal all of their funds at the same time, the bank must list the deposits as a current liability.
Current Liabilities
Investing Lesson 3 - Analyzing a Balance Sheet
By Joshua Kennon, About.com Guide
See More About:
• • • • •
debt to equity debt management investing research income statements financial ratios
Current liabilities represent money a company owes for its debts or liabilities in the next twelve months. The biggest current liability is most often accounts payable, which is money owed to vendors for goods or services provided to the company.
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Bank of SingaporeWorld-class service for today's high net worth individuals. Read onwww.bankofsingapore.com Free Financial ReportsThousands of Corporations Worldwide Access their Annual Reports Now!www.OrderAnnualReports.com ETF PlaybookETF Swing Trading Strategy Free 2-week trial subscriptionrhodes-capital.com Investing Ads Balance Sheet Short Term Loans Debt to Equity Stock Investing Current Liabilities Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current assets. Current liabilities includes things such as short term loans, accounts payable, dividends and interest payable, bonds payable, consumer deposits, and reserves for Federal taxes. Let's take a look at some of the most common and important current liabilities on the balance sheet. Accounts Payable - The Most Popular Current Liability
Accounts payable is the opposite of accounts receivable. It arises when a company receives a product or service before it pays for it. Accounts payable, or A/P as it is often shorthanded, is one of the largest current liabilities a company will face because they are constantly ordering new products or paying vendors for services or merchandise. Really well managed companies attempt to keep accounts payable high enough to cover all existing inventory, meaning that the vendors are paying for the company's shelves to remain stocked, in effect. Accrued Benefits and Payroll as a Current Liability This item in the current liabilities section of the balance sheet represents money owed to employees as salary and bonus that the company has not yet paid. Short Term and Current Long Term Debt These current liabilities are sometimes referred to as notes payable. They are the most important item under current liabilities section of the balance sheet and most of the time, they represent the payments on a company's bank loans that are due in the next twelve months. Borrowing money in itself is not necessarily a sign of financial weakness; an intelligent department store executive may work out short term loans at Christmas so she can stock up on merchandise before the Holiday rush. If demand is high, the store would sell all of its inventory, pay back the short term loans, and pocket the difference. This is known as utilizing leverage. The department store used borrowed money to make a profit. So how can you ever hope to tell if a company is wisely borrowing money (such as our department store), or recklessly going into debt? Look at the amount of notes payable on the balance sheet (if they aren't classified under 'notes payable', combine the company's short term obligations and long term current debt). If the amount of cash and cash equivalents is much larger than the notes payable, you shouldn't have any reason to be concerned. If, on the other hand, the notes payable has a higher value than the cash, short term investments, and accounts receivable combined, you should be seriously concerned. Unless the company operates in a business where inventory can quickly be turned into cash, this is a serious sign of financial weakness. Other Current Liabilities Depending on the company, you will see various other current liabilities listed. Sometimes they will be lumped together under the title "other current liabilities." Normally, you can find a detailed listing of what these "other" liabilities are buried somewhere in the annual report or 10k. Often, you can figure out the meaning of the entry by its name. If a business lists "Commercial Paper" or "Bonds Payable" as a current liability, you can be fairly confident the amount listed is what will be paid out to the company's bond holders in the short term. Consumer Deposits Are Liabilities to Banks If you are looking at the balance sheet of a bank, you will want to pay close attention to an entry under the current liabilities called "Consumer Deposits". Often, they will be will lumped under other current liabilities. This is the amount that customers have deposited in the bank. Since, theoretically, all of the account holders could withdrawal all of their funds at the same time, the bank must list the deposits as a current liability.
